SGI Financial Numbers Hurt by Government Shutdown

SGI’s Federal business has a significant number of government customers, including the Department of Homeland Security, the Department of Defense, the Army and Air Force, and the Department of Energy. About half of SGI’s business comes from the U.S. government.
The shutdown also comes as SGI moves away from its legacy cloud infrastructure business to focus on higher-margin efforts, including high-performance computing, big data and storage. Titinger said he was pleased with the growth in those areas.
“However, the opportunities we're pursuing are generally large deals with long sales cycles and lengthy acceptance criteria,” he said. “Close to half of the pipeline is inside Federal, which currently has limited visibility. Although most of the projects we are involved with are considered mission-critical, we have seen unprecedented halts to programs over the past week. For example, the GEOINT Conference, the largest tech gathering that serves the intelligence community, was canceled for the first time in its 10-year history with only one week's notice.”
How hard SGI is impacted will depend on how long the shutdown lasts, and whether the debt ceiling is raised, the CEO said. Economists, financial analysts and many government leaders have said that a failure to raise the debt ceiling—thus forcing the United States to default on its debts—could have significant and widespread effects not only in the United States, but worldwide.

In an Oct. 7 post on the Forrester Research blog, analyst Andrew Bartels wrote that the “U.S. economy would almost certainly decline in Q4 2013 and Q1 2014, with potentially continued declines or at best weak growth in the rest of the year. Should this happen, U.S. tech spending would fall in 2014, with poor prospects after that.”

Answering an analysts’ question, Titinger said it was difficult to say how long the company would feel the negative impacts from the partial shutdown, but that time was a key factor.
“The longer this goes out without resolution, the harder the impact,” he said. “I view this almost as having brought a freight train to a dead stop in a hurry and then having to restart it. It doesn't go up to its speed velocity immediately, right? And so we're hopeful that this gets resolved pretty quickly.”